AG Opinion in Joined Cases C-20/15 P y C-21/15 P, Santander and World Duty Free Group (ex-Autogrill): Wathelet proposes nothing short of a revolution
Nobody doubts that the notion of selectivity is the single most complex issue in EU State Aid Law. There have been many genuinely hard cases in the past few years, and the issues raised by each of them are very different. On the other hand, I had the impression that we were coming close to reaching a point of consensus, and that, by bringing together the different strands of the case law, it was possible to come up with something that looks like a coherent framework.
I do not have this certainty anymore after reading yesterday’s Opinion by AG Wathelet in the Santander and World Duty Free Group (ex-Autogrill) cases (on which Alfonso has been working). The Advocate General proposes a major departure from the consensus that had been developing. The Opinion appears to go further than Gibraltar, which is the most controversial case of the past few years.
There is nothing wrong, per se, in advocating a change in the law. We have been there before in EU State Aid Law. I am ready to anticipate, however, that the position advanced by AG Wathelet will give rise to considerable controversy. I can think of three main lines of criticism:
- From a strictly positive perspective, commentators are likely to argue that the opinion is at odds with the case law. Interestingly, this case law (such as 3M and a Germany v Commission judgment from 2000) is discussed in the Opinion. I explain this point in some detail below.
- From a functional perspective, the Opinion, if followed, would have major consequences. The notion of state aid would be significantly broader, thereby leading to an appreciable increase in the range of measures that would be caught by Article 107(1) TFEU (and the volume of cases that the Commission could potentially handle).
- From an institutional perspective, the Opinion would lead to a significant shift in powers to the Commission. The Commission would have greater discretion to scrutinise (and to have a say over) national tax systems. When reading the Opinion, I thought of AG Jacobs’ Opinion in PreussenElektra, who discussed in detail the institutional consequences of broadening the scope of the notion of aid.
The case was, I thought, relatively straightforward (just to give you an idea, I mention it just in passing in class). It is about a measure that allows firms that are tax residents in Spain to amortise the goodwill resulting from the acquisition of shareholdings in undertakings which are tax resident abroad.
The question is whether this measure is selective. The General Court concluded that it is not. After all, it does not discriminate between firms that are tax residents in Spain, and it is open, in fact and in law, to all undertakings. Sure, some firms benefit more than others from it, but this has never been enough to qualify a measure as State aid (or so I thought).
I can illustrate this idea by reference to a classic example discussed in the Commission Notice on direct business taxation. Consider a reduction in the tax burden of research and development activities. Not all firms would benefit from the measure to the same extent (some of them do not benefit from it at all). Insofar as it is genuinely open to all undertakings, however, it is not selective (this is in fact what the Commission itself said in the Notice).
AG Wathelet’s Opinion departs from this position. In his view, both the deduction at stake in Santander and ex-Autogrill and the tax break for research and development activities would be selective and thus would qualify prima facie as State aid. AG Wathelet appears to argue that any deduction in the corporate tax system would be selective insofar as it would have the effect of treating some firms more favourably than others. If you are familiar with the reality of corporate taxation across the EU you may have thought ‘well, then it means that pretty much all of the tax code is State aid’. I thought that too when I read the opinion, which is why I referred to institutional and functional issues above.
As I pointed out above, the fact that AG Wathelet proposes to broaden substantially the scope of Article 107(1) TFEU is not a ground of criticism in itself. Why will the Opinion be criticised from a positive standpoint, then? I can think of the following reasons:
- The Opinion suggests that any derogation is prima facie selective. In doing so, it appears to conflate two separate questions. Contrary to what it is implied by AG Wathelet, not all derogations are selective, in the same way that a selective measure need not be derogation from a ‘normal regime’.
- I also note that the Opinion reveals a tendency to conflate the notion of advantage and the notion of selectivity. Again, contrary to what is suggested, an advantage within the meaning of Article 107(1) TFEU is not necessarily selective. This is something that the Court has always made clear, more recently in MOL.
- The Opinion can simply not be reconciled with the case law. Germany v Commission, which is a judgment that I have studied in some detail, is objectively at odds with the position taken by the Advocate General. Pretty much the same can be said of 3M. In essence, the Opinion is inviting the Court to overrule these precedents.
We will have to wait a few months. As I explained earlier this month, the Court has a preference for stability and continuity. But we know that changes happen, and this may be the occasion in which the notion of selectivity is given a whole new, much broader, meaning, to become something akin to an instrument to harmonise corporate taxation.